Bombardier sells CRJ program to Mitsubishi

CEO says $550M deal allows transportation company to focus on rail and business jets.

0 June 25, 2019
The Canadian Press
by Christopher Reynolds

MONTREAL – Bombardier Inc. announced Tuesday a deal to sell its regional jet program to Mitsubishi Heavy Industries Ltd. for US$550 million, cementing the plane-and-train maker’s exit from commercial aviation.

“With our aerospace transformation now behind us, we have a clear path forward and a powerful vision for the future,” Bombardier chief executive Alain Bellemare said in a statement.

The definitive agreement paves the way for Bombardier to focus on its rail and business jet units, which took in a combined 86 per cent of the company’s $16.24 billion in revenue last year.

Mitsubishi, which will also assume liabilities totalling about US$200 million, will acquire the maintenance, support, refurbishment, marketing and sales activities for the CRJ Series aircraft.

The agreement includes the related services and support network located in Montreal and Toronto and its service centres in Bridgeport, W.Va., and Tucson, Ariz.

Bombardier will continue to assemble the current CRJ backlog – 51 planes at the end of the first quarter – on behalf of Mitsubishi, with production expected to be completed in the second half of 2020. It is unclear what will happen to Bombardier’s 1,600 CRJ workers, 40 per cent of whom work in Canada.

“You could very well see some of the final assembly jobs leave the country lock, stock and barrel,” said Robert Kokonis, president of Toronto-based consulting firm AirTrav Inc. “These new investors are looking to maximize the returns off the production. If they can do it cheaper elsewhere, maybe they would. Especially in the case of Japan.

“It’s just the final nail in the coffin of Bombardier commercial airplanes,” he said of the deal.

Once a cash cow for the Montreal-based company, the CRJ now struggles to generate profits. For the past five years, Embraer SA’s E175 narrow-body aircraft has dominated the U.S. market, where the majority of regional jets are sold.

Bombardier recently sold its Q400 turboprop business to an affiliate of Longview Aviation Capital Corp. for about $250 million in net proceeds.

The transportation company is placing renewed focus on its business jets – such as the Global 7500 – whose robust sales and high earnings margin in 2018 propelled the company to its first annual profit in five years. Last year, it sold a majority stake in its C Series commercial aircraft program to Airbus, which rebranded it the Airbus A220.

The appeal of the CRJ purchase lies largely in aftermarket sales and maintenance as well as engineering know-how.

Mitsubishi chief executive Seiji Izumisawa said the deal is an important step towards building a strong, global aviation capability, which includes a Mitsubushi-made CRJ variant, the MRJ, that it hopes to launch next year.

“In combination with our existing infrastructure and resources in Japan, Canada and elsewhere, we are confident that this represents one effective strategy that will contribute to the future success of the Mitsubishi SpaceJet family,” Izumisawa said.

The CRJ production facility in Mirabel, Que., will remain with Bombardier, which will also continue to supply components and spare parts as part of the US$550-million deal. Bombardier will also retain roughly US$400 million in liabilities representing a portion of the credit and residual value guarantees.

“Five-hundred million is better than we thought it was going to be,” said analyst Chris Murray of AltaCorp Capital. “The CRJ program, I don’t think it’s been profitable for years on the build of new aircraft.

“Maybe if you add in the sale of parts and the support service, maybe it’s done OK. But it’s probably capital better deployed in debt reduction or other corporate purposes,” he told The Canadian Press.

Murray predicted that the aerostructures unit, which makes components such as wings and fuselage and generated 12 per cent of 2018 revenues, will “be the next likely divestment” as the company zeroes in on business jets and rail.

The CRJ deal is expected to close in the first half of next year, subject to regulatory approvals and customary closing conditions.
www.bombardier.com

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